Earnest, a lending company that uses data science, design and software automation to rebuild financial services, has raised $275 million in its Series B round from partners like Battery Ventures, Adams Street Partners and New York Life. General Partner Roger Lee from Battery will be joining the company’s board. Battery Ventures led by $75 million in equity and the company received another $200 million in debt from a syndicate of mostly undisclosed insurance companies led by New York Life. Earlier this year, Earnest raised $19.8 million in Series A from Maveron.
With this investment, Earnest gets an opportunity to strengthen its position in the fast-growing lending segment of the FinTech industry. Lending companies demonstrated high potential and demand for the services with such examples like SoFi (raised $1 billion in Series E led by Softbank Group) and CommonBond ($35 million this year), which entered the market with their solutions. Interestingly, these companies are closing funding rounds with significant checks in relatively short time.
Unlike its strong competitors that are refinancing the loans, Earnest solution is data-focused and more tailored as it takes into consideration personal circumstances to set the rate. Student loans so far have been the largest part of the business. As American students are the ones mostly burdened with debts, this particular sector is a sweet spot for FinTech companies to enter and gain shares quickly. Student loan debt reached $1.2 trillion this year in the US.
Another reason the company has caught the attention of the investors was rapid growth. As Roger Lee, a General Partner at Battery Ventures, said to The New York Times, “Rarely do you see a company going from zero to 60 this quickly.” With around 160 people, the company plans to expand and hire 200 more next year, focusing on technical people that will work on a mobile version of Earnest. As Chief Executive Louis Beryl commented in his LinkedIn announcement, “We have grown by nearly 50x over the past year, which hasn’t come without its challenges—we switched offices, ran out of space, switched offices again, hired more than 100 brilliant people and have worked all hours of the day, night and weekend to make sure that we’re delivering an exceptional experience for our clients.”
Louis Beryl also shared with The New York Times that Earnest lends between $2 million and $5 million per day and the total dollar amount the company has loaned has increased 50 times over the past year. On average, the company’s loans are about $70,000. For assessing the loan request, the company asks for a read-only access to the bank accounts, credit and retirement accounts, investment accounts and all information about existing loans. The company, however, doesn’t store or sell any personal data.
Precision Pricing feature, introduced by Earnest, is what makes the company fundamentally different from other lenders, as Louis pointed out. Even though Earnest entered the market quite recently, the company has reached the highest savings average in the industry, according to its chief executive.
Sharing his thoughts with TC on the future of finance, Louis concluded, “One of the things we believe about the future of finance is real-time connected accounts using software and data (can) drive down costs. Today we’re doing that in lending. As we build out our platform that could be in financial planning, or that could be in financial education.”